Nursing home spending patterns in the 1990s: the role of nursing home competition and excess demand

Health Services Research, August, 2005 by Dana B. Mukamel, William D. Spector, Alina Bajorska

Administrative costs were also subject to new forces during the 1990s. The Balanced Budget Act (BBA) of 1997 required implementation of the Minimum Data Set (MDS) and electronic transmission of the data by all nursing homes starting in 1998. In NYS, this had begun earlier as some nursing homes participated in the Multistate Nursing Home Case Mix and Quality Demonstration (Zimmerman et al. 1995). The BBA also mandated consolidated billing, which meant that nursing homes would have had to process many more bills than before. In addition, in 1995 the Federal government began an operation to uncover fraudulent billing, targeting nursing homes among others. This required nursing homes to justify their charges, which in turn meant linking clinical and billing data. Those nursing homes that sought managed care contracts for sub-acute care also faced a need to better understand their cost structure and identify costs associated with sub-acute care separately from other costs. All of these placed new administrative demands on nursing homes during the 1990s, which likely led to investment in more sophisticated information systems and increased administrative costs. Furthermore, competition among nursing homes likely increased the need to advertise, resulting in higher administrative expenditures in more competitive areas.

To summarize, we expect that the changes in the environment during the 1990s would have influenced nursing homes expenditures in the following ways:

Clinical Costs

* Clinical care costs would have increased throughout the decade as managed care and Medicare PPS made sub-acute care a lucrative and expanding line of business.

* Clinical costs would be higher in more competitive areas and in areas that do not experience excess demand, as nursing homes compete for both sub-acute and long-term care residents.

Hotel Costs

* Hotel expenditures may have declined during the 1990s if nursing homes shifted resources to clinical activities in order to accommodate the demand for sub-acute care, which is focused on clinical services.

* Hotel costs would be higher in more competitive areas and in areas without excess demand, markets in which nursing homes are facing competition not only for the sub-acute and private-pay patients but also for Medicaid residents.

Administrative Costs

* Administrative costs would have increased throughout the decade as nursing homes faced new regulatory requirements.

* Administrative costs would be higher in more competitive areas and in markets without excess demand reflecting the increased costs of attracting new residents.

METHODS

Data and Sample

There were 500 free-standing NYS nursing homes that were in operation in 1991, 1996, and 1999. Of these, 35 nursing homes were excluded because of incomplete or inaccurate data. The data set included three observations for each facility, one for each year--1991, 1996, and 1999, except for 19 observations (facility/year combinations) that were deleted because of missing data. The final sample includes 1,376 observations for 465 facilities.